Japan - September 2024

S P OT L I G H T
Savills Research

Japan Logistics©ESR LTD

Japan Logistics

Temporary challenges persist, but
the mid-term fundamentals remain soundSummary• In Greater Tokyo, the market
has continued to loosen slightly
as elevated new supply exceeds
demand, with vacancy rates
increasing by 1.6 percentage
points (ppts) year-on-year(YoY) to 7.7%.
• Conversely, demand in Greater
Osaka this year so far has been
greater than new supply, withvacancy rates improving halfyear-on-half-year (HoH) but stillloosening marginally by 0.1ppts
YoY to 2.7%.

INTRODUCTION
The logistics sector in Greater Tokyo1 andGreater Osaka 2 demonstrated contrasting
performances over the past half-year. Supply
continues to outpace demand in Greater
Tokyo, resulting in a sustained uptick invacancies. Conversely, the Greater Osaka
market saw demand outstrip supply, leading
to a reduction in vacancies.
The logistics sector enjoyed heightened
popularity during the pandemic era, but investor
interest has waned in 2024 with lukewarm
1 Greater Tokyo is defined as the region which consists ofTokyo, Kanagawa, Chiba, and Saitama
2 Greater Osaka is defined as the region which consists ofOsaka, Kyoto, Hyogo, and Nara

THOUSAND SQ M

5Y Avg Completions (2019-2023)

Vacancy Rate (RHS)
18%

4,000

16%

3,500

14%

3,000

12%

2,500

10%

2,000

8%

1,500

6%

1,000

4%

500

2%

0

0%

Graph 2: Greater Tokyo Rent and Vacancy, 2016 to 1H/2024
Average Rent (LHS)

Average Vacancy (RHS)

5,000

8%
7%

4,800

6%
4,600

5%
4%

4,400

3%

4,200

VACANCY RATE

• Overall, the logistics sector has
loosened due to high levelsof supply. Nevertheless, thefundamentals of the sector are
solid, and investors who are able
to brace the current storm ofchallenges should be rewarded
once the market has calmed.

DemandSource Ichigo Real Estate Service, Savills Research & Consultancy
Note Annual periods from February to January. Vacancy rates are as of the year end for each annual period,
while the rate presented for 1H/2024 is as of July 2024.

JPY / TSUBO / MONTH• Although supply levels in 2024
are expected to be lower thanthe peak from the previous year,
2025 is projected to witness
an increase in new supply, with
Greater Osaka reaching recordhigh levels.

Supply4,500

VACANCY RATE

• Though demand has beenstrong overall, investment
levels in the industrial sector
in 1H/2024 were slightly lower
than in the same period of theprevious year. Indeed, risingvacancies, construction costs,
and interest rates have led toincreased caution in development
and acquisition plans.

MARKET TRENDS
The Greater Tokyo market has continued
to see significant new supply being added
to the market in 1H/2024. While demand

Graph 1: Supply, Demand, and Vacancy in Greater Tokyo, 2010 to 1H/2024• Rents in Greater Tokyo
increased to JPY4,820 per
tsubo, climbing by 4.3% HoH
and 6.6% YoY.
• Rents in Greater Osakacontracted by 1.4% HoH, whileremaining flat YoY at JPY4,180
per tsubo.

leasing markets due to the large supply, on top ofinterest rate hikes looking to depress net yields.
Nonetheless, fundamentals of the sector remainstrong, and interested investors could use thisas an opportunity to break into the market. In
the meantime, a range of corporate strategic
shifts and innovations to address challenges in
the market have been reported, which look tobrighten prospects for the sector.

2%
4,000

1%
0%
Q1
Q2
Q3
Q4
Q1
Q2
Q3
Q4
Q1
Q2
Q3
Q4
Q1
Q2
Q3
Q4
Q1
Q2
Q3
Q4
Q1
Q2
Q3
Q4
Q1
Q2
Q3
Q4
Q1
Q2
Q3
Q4
Q1
Q2

3,800
2016

2017

2018

2019

2020

2021

2022

2023 2024

Source Ichigo Real Estate Service, Savills Research & Consultancy
Note Annual periods from February to January.

savills.co.jp/insight-and-opinion/2

Japan Logistics

was sound, it was outpaced slightly by new
supply, leading to another uptick in vacancy
at 0.6 percentage point (ppts) over the past
half-year and 1.6ppts YoY, reaching 7.7%.
That said, 60% of the supply for 2024 hascome to the market in the first half of theyear, meaning that the market should havean easier time absorbing new supply for theremainder of the year.
Average asking rents in the Greater Tokyo
market exceeded the previous 2022 record
high, strengthening considerably by 4.3%
QoQ and 6.6% YoY, reaching JPY4,820 per
tsubo. This increment has been driven partly
by rising construction costs, and also by ahandful of listings of expensive properties inprime locations, namely Tokyo and Southern
Saitama. Discounting these, market rents
have been relatively stable with unnoticeablechanges. Rental growth should nonethelessvary by property; prime facilities withdesirable amenities will command higher
rents with stronger growth, while older andless accessible properties have fewer chances
to increase rents, especially with the market
loosening in recent quarters.
In contrast, demand in Greater Osakaslightly outstripped supply in 1H/2024, withvacancy tightening by 0.3ppts HoH whileloosening marginally by 0.1ppts YoY to 2.7%.
The moderate supply forecast for the rest of
the year should point to continued stability
in the market in 2024. Due to the market’sbalance between demand and supply, rents
have contracted 1.4% QoQ while remaining
flat YoY at JPY4,180 per tsubo.
INCOMING SUPPLYGreater Tokyo experienced an influx of nearly
2.0 million sq m of GFA into the market in
1H/2024, approximately 30% lower than theOverall demand in the logistics
sector remains sound, but highlevels of new supply in recent years
have kept vacancies on a rising
trend. In addition, many challenges,
including global uncertainties,
labour shortages, interest rates, andconstruction costs, have kept many
players on their toes. That said, thelogistics market is evolving, withstrong fundamentals in a longerterm timeframe. In the interim,
prime logistics facilities with modern
amenities in accessible areas should
continue to perform well, althougholder facilities in less convenientareas are likely to face challenges.

same period in 2023. The largest completionin the first half of 2024 was the Atsugi III
Logistics Center, a multi-tenant logistics
facility located in Kanagawa with a GFA of
182,000 sq m. The facility had reportedly
secured five tenants upon completion, andGraph 3: Supply, Demand, and Vacancy in Greater Osaka, 2010 to 1H/2024
SupplyDemand5Y Avg Completions (2019-2023)

Vacancy Rate (RHS)

1,750

14%

1,500

12%

1,250

10%

1,000

8%

750

6%

500

4%

250

2%

0

0%

THOUSAND SQ M

16%

VACANCY RATE

2,000

Source Ichigo Real Estate Service, Savills Research & Consultancy
Note Annual periods from February to January. Vacancy rates are as of the year end for each annual period,
while the rate presented for 1H/2024 is as of July 2024.

3

began operations at full occupancy in May.
Located near the Metropolitan Inter-City
Expressway, which has access to the Tokyo
Metropolitan Area, northern Kanto andwestern Japan, its accessibility will be evenfurther improved when new connections via
the Shin-Tomei Expressway are completed
in 2027.
In the second half of 2024, the 256,000 sq m
MFLP LOGIFRONT Tokyo-Itabashi will be
the largest addition for 2024. Located in the
23W, this facility will be the first in the area
to use its extensive site as a testing ground for
drone flights, such as the delivery of goods inthe final stage of the supply chain (last-miledelivery) and the transportation of relief
supplies during emergencies. Overall, 2024
is expected to see approximately 3.2 million
sq m of new logistics supply, about 25% lower
than the peak in 2023. Additionally, lower
supply levels are anticipated in subsequent
years, driven by rising construction costs
and labour shortages, which will further
facilitate the absorption of existing elevatedsecondary vacancies.
In Greater Osaka, the new supply forecast
for 2024 has been revised down to just under 1
million sq m from 1.2 million sq m a year ago,
due to rising construction costs and extended
construction periods prompting developers toJapan Logistics

Graph 4: Greater Osaka Rent and Vacancy, 2016 to 1H/2024
Average Rent (LHS)

4,500

Average Vacancy (RHS)

14%
12%
10%

4,000

8%
3,750
6%
3,500

4%

3,250

VACANCY RATE

JPY / TSUBO / MONTH

4,250

2%
0%
Q1
Q2
Q3
Q4
Q1
Q2
Q3
Q4
Q1
Q2
Q3
Q4
Q1
Q2
Q3
Q4
Q1
Q2
Q3
Q4
Q1
Q2
Q3
Q4
Q1
Q2
Q3
Q4
Q1
Q2
Q3
Q4
Q1
Q2

3,000
2016

2017

2018

2019

2020

2021

2022

2023 2024

Source Ichigo Real Estate Service, Savills Research & Consultancy
Note Annual periods from February to January.

Graph 5: Annual New Supply* in Japan by Region, 2018 to 2026F
Greater Tokyo

8

Greater Osaka

Other

7

GFA (MILLION SQ M)

6
5
4
3
2
1
0
2018

2019

2020

2021

2022

2023

2024F

2025F

2026F

Source Ichigo Real Estate Service, Savills Research & Consultancy* Projects in 2024 and beyond tend to be added later once details are ready to be announced. The data
provided by Ichigo only considers facilities with GFAs >10,000 sq m and is as of 1 August 2024.

MAP 1: Upcoming Completions in Greater Osaka with GFA of Greater than 50,000 sq m,
2024 to 2028*

Completion Year
2024
2025
2026
2027
2028

GFA

50,000100,000
150,000
200,000
250,000
300,000

Source Company Disclosures, Ichigo Real Estate Service, Savills Research & Consultancy* Projects where GFA and/or completion date are unavailable are omitted from the dataset.
New supply data is as of 1 August 2024.

savills.co.jp/insight-and-opinion/

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alter their development plans. The first half of2024 accounted for 65% of the year’s supply,with the largest contributor being the LOGI’Q
Minami-Ibaraki by Tokyu Land, adding
162,000 sq m to the market. In the second halfof 2024, new supply is forecast to be relatively
subdued, with only one completion larger
than 100,000 sq m - the 165,000 sq m GLP
ALFALINK Ibaraki 1. This should provide
room for absorption for the rest of 2024.
Looking ahead, 2025 will see a significant
uptick in new logistics supply in Greater
Osaka, approximately 1.8 million sq m, almost
double the amounts seen in each of the two
preceding years. The most notable upcoming
completions in 2025 will be CPD Nishinomiya
Kita I and II, with an aggregate GFA of
300,000 sq m. Located near the Chugoku andthe Hanshin Expressways, this prime location
offers excellent transportation access,supporting medium-to-long-term transport
needs between Osaka and Kobe and should
serve as a wide-area distribution hub for
the Kansai, Chugoku and Shikoku regions.
Given the much lower levels of existing
stock in Greater Osaka, the limited supply islikely to stimulate demand, although it may
cause temporary disruptions.
INVESTMENT TRENDS
According to preliminary data aggregated by
MSCI, investment activity in Japan has been
growing steadily, with the total investment
volume in 1H/2024 around 18% greater thanthat observed in 1H/2023. That said, investment
levels in the logistics sector in 1H/2024 areabout 4% lower than the same period in theprevious year, although it must also be notedthat 2023 was a record year for the logistics
sector. Transaction data is nonethelesspreliminary and investment volumes will
likely increase as more transactions are
confirmed throughout the rest of the year.
The recent uptick in short-term interest
rates and uncertainty over future hikes havecreated volatility in the equity capital market.
Some bigger players have adapted in different
ways. For instance, Mitsui Fudosan Logistics
Park Investment Corporation plans to merge
with Advance Logistics, with the former
absorbing the latter, resulting in a projected
6.4% increase in distributions per unit frominternal and external growth, and a slightly
reduced Loan-to-Value ratio from 40.5% to39.9%. However, the long-term benefits ofthe merger remain ambiguous and should becontinuously monitored.
Nevertheless, significant transactions arestill being observed in 2024, particularly
among international investors. The largest
transaction is the acquisition of DPL
Yokohama Totsuka by GIC from Daiwa House
for JPY59.8 billion. Significant transactions
have also been recorded by domesticJapan Logistics

Graph 6: Share of Investment Volumes by Asset Class, 2007 to 1H/2024
OfficeResidential

RetailHospitality

Other

Total
10

90%

9

80%

8

70%

7

60%

6

50%

5

40%

4

30%

3

20%

2

10%

1

0%

0

JPY (TRILLION)PROPORTION OF INVESTMENT (%)

Logistics
100%

Source MSCI Real Capital Analytics, Savills Research & Consultancy

Graph 7: Six-month-ahead Expectations for Rent and Capital Appreciation, 2008 to
2H/2024Rents

100

Capital Values

78.0 80.9 74.3 75.0
69.2
67.5 66.7 66.3
66.8
66.3
60
56.2
53.3
53.3
50.7 54.7
48.8 43.2
50.5 48.8
38.3
38.0
40
41.0
45.1
29.9 38.9
29.0
27.3
34.8
29.7
23.1 25.9 25.3 37.0
19.5
25.6
28.6
28.4
28.7
20.7
20 13.8
19.6 16.3
22.6
21.0 18.7
19.2
13.0
14.1
8.4 7.7
15.3 14.0 14.9
5.0
6.9
0
-14.8
-4.8
-3.7
-6.3
-20.5
-13.1
-15.9
-20
-25.9
-37.7
-40
-40.3
-42.0

DIFFUSION INDEX

80

-60
-80

-63.9
-86.2

1H
2H
1H
2H
1H
2H
1H
2H
1H
2H
1H
2H
1H
2H
1H
2H
1H
2H
1H
2H
1H
2H
1H
2H
1H
2H
1H
2H
1H
2H
1H
2H
1H
2H

-100
2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024
Source Ichigo Real Estate Service, Savills Research & Consultancy

Table 1: Selected Investments, Announced between March 2024 to August 2024
PROPERTY
NAME

TRANSACTION APPRAISALVALUEDIRECT CAP(JPY BIL)
RATE

BUYER

SELLERDPL Yokohama
Totsuka

59.8

-

GIC

Daiwa House
Industry

Hino Motors Hidaka
Dispatch Center

44.1

-

AmazonHino Motors

ESR Yatomi Kisosaki
DC

38.0

-

ESR-LOGOS REITAXA IM Real Assets

DPL Urayasu III

30.0

3.3%

Daiwa House REIT

SPC of Daiwa House
Industry

Tama Technology
Bldg

23.4

-

Keppel DC REIT,
Keppel Capital

Mitsui Fudosan

Daiwa House REIT
portfolio(3 properties)

22.6

4.0% to 5.3%

SPC of Daiwa
House Industry

Daiwa House REIT

Source Company Disclosures, Nikkei RE, Savills Research & Consultancy

5

investors over the past half year. Daiwa HouseREIT acquired DPL Urayasu III in Chiba for
JPY30.0 billion from its sponsor, Daiwa House
Industry, and in a separate transaction, soldthree logistics properties in Saitama, Chiba
and Tochigi to its parent company for JPY22.6
billion. Elsewhere, Nomura Master Fund
acquired the 50,000 sq m GFA Landport Tamain Tokyo for JPY17.5 billion.
The 33rd bi-annual market sentiment
survey in late July by Ichigo Real Estate
Service showed a shift to a more neutral
outlook, with over 70% of the respondents
anticipating stable capital values. Increased
caution towards new investments has
emerged due to uncertainty surrounding
potential future rate hikes. Nearly half of
respondents expect further rental growth,
driven mainly by rising construction costs
passed on to tenants and the ongoinginflationary environment. Facilities thathave cold storage and hazardous goods
storage continue to be able to fetch higher
rents due to its higher demand from tenants.
Overall investment appetite in Japanremains robust, despite challenges posed bymarket uncertainty and rising interest rates.
The logistics sector continues to experience
notable investment levels in 1H/2024,
largely on par with 1H/2023. Despite theshort-term challenges and uncertainties,
including increased investor caution, larger
players are observed to be making strategic
moves to maximise yields. Additionally, costpressures from elevated construction andland prices, increased wages and restrictions
on overtime work will potentially eat into
profits considering the limitations on
raising rents, at least on a short-term basis,
prompting investors to exercise greater
caution. From a longer-term perspective, thefundamentals of the logistics sector remainstrong, backed by strong and sustained
e-commerce growth, and the sector should
continue performing well after overcoming
near term challenges.
CAUTION MATERIALISING
In our 2022 report [Japan Logistics Evidence of caution], we cited potential
reasons for caution in the logistics sector.
During the pandemic, many investors
shirked away from hotel, retail, and officeassets, resulting in the logistics sector seeing
very high levels of interest as an avenue todeploy capital. Consequentially, cap rates
were rapidly and thinly compressed, giving
the mien of some overheating at the time.
As of 2024, with a glut of supply in recent
years leading to rising vacancy levels, ourconcerns seem to have materialised.
Observing the logistics market in mid2024, it appears that some caution might
have indeed been warranted. VoluminousJapan Logistics

Graph 8: Average Construction Cost for RC Logistics Facilities in Japan per Tsubo,
2011 to 2023
600,000

500,000

JPY

400,000

300,000

200,000

100,0000
2011

2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023
Source MLIT, Savills Research & Consultancy

Graph 9: Trucking Company Ordinary Profit Margin by Number of Trucks, FY2014 toFY2022less than 10

11 to 20

21 to 50

50 to 100

more than 100

Total

FY2020

FY2022

4%

3%

2%

1%

0%

-1%

-2%
FY2014FY2015FY2016FY2017FY2018FY2019FY2021

Source Japan Trucking Association, Savills Research & Consultancy

Graph 10: General Warehousing Company Profitability for Storage and Handling,
FY2011 to FY2022

JPY (MILLION)

Revenue

ExpenseOperating Profit Margin (RHS)

2,300

9%

2,100

8%

1,900

7%

1,700

6%

1,500

5%

1,300

4%

1,100

3%

900

2%

700

1%

500

0%

Source MLIT, Savills Research & Consultancy

savills.co.jp/insight-and-opinion/

6

amounts of supply have been added tothe market since 2021, and this is forecast
to continue, at least until 2025. This has
contributed to the market loosening overthe past few years, with vacancies seeing
substantial increments. From a capital
markets perspective, many players, inparticular international ones, appear eager
to reduce some exposure to the market,
especially with interest rate increments
looking to depress net yields. Indeed, inmany cases, landlords are caught between
a rock and a hard place – increasing rents istricky because tenants are facing a myriadof challenges elsewhere, with rising labourcosts exacerbated by newly introduced
labour regulations, and heightened energy
prices that have raised operation costs. On
the other hand, for facilities with vacant
space, discounting rents to attract tenants
would also be a bitter pill to swallow,
especially for those who entered the market
at sharp prices.
That said, the rush to offload logistics
assets also seems somewhat drastic. Firstand foremost, fundamentals of the industry
remain strong; the e-commerce sector inJapan has been growing rapidly but still
has room for further expansion, and the
pandemic has prematurely sated only
some demand in advance. Next, althoughconsiderable amounts of supply are forecast
until 2025, this should decrease significantly
beyond 2026. Indeed, construction costs
for logistics facilities have seen marked
increments, especially over the past few
years, and the lead time for construction
projects has noticeably lengthened,
exacerbated by labour shortages; this has
been apparent in other sectors, and is likely
worse for the logistics sector as facilities
are generally located in more rural areas.
Furthermore, land prices even in rural
areas have been increasing, although they
are admittedly still low. However, when
preparation costs are factored in, the total
cost of land may not be that small. Given that
average rents are in the JPY4,000 per tsubo
range, and the elevated construction andland costs, the total yield could be too low
to justify continued development. As such,supply beyond 2026 is likely to be limited.
Overall, for the next 18 months or so,current players in the logistics sector
should brace for a bumpy ride ahead due
to elevated levels of supply and a loosenedmarket. At the same time, the road should
gradually smoothen as the market is expected
to tighten, and there should be room forpotential rental growth once the dust settles.
There are also some positive signs, including
more trucking companies seeing healthierprofit margins (Graph 9). Meanwhile,
warehousing companies have seenJapan Logistics

Graph 11: Logistics Cost Percentage of Corporate Revenue, FY2010 to FY2023
6.0%

5.5%

5.0%

4.5%

4.0%

3.5%

3.0%

Source Japan Institute of Logistics Systems, Savills Research & Consultancy

improving levels of operational profitability
for storage and handling (Graph 10). In
addition, logistics costs do not appear tohave increased as a percentage of corporate
revenue in the past few years, suggestingthat logistics firms could have some leeway
to increase pricing (Graph 11). Admittedly,
there are also multiple hurdles in the way,
including the “2024 problem” which imposessignificant limitations on driver working
hours, whose repercussions may not havefully surfaced and will need to be monitored
closely. Nonetheless, there are multiple
potential deals on the market, and this could
thus be a favourable point of entry for thosethat are able to stomach some level of initialvacancy risk.

OUTLOOK
While logistics fundamentals remain strong,various hurdles are impeding the growth of thesector in the near term. Firstly, large supply inrecent years significantly loosened the market.
This has been exacerbated by challenges fromthe broader market environment, such asheightened global uncertainty and Japan’sinterest rate hikes, which are dampening
investors’ appetite. The strategic shift fromoffice to logistics facilities over the past few
years is cooling off to more sustainable levels.
Additionally, some developers have altered
their development plans due to increasing
construction costs, evidenced by thecorrection in supply forecast, especially, in
2025 in Osaka, compared to a year ago.

The “2024 problem” has made a significant
impact on the logistics industry as long working
hours are a norm, particularly for truck drivers
in rural areas. This has prompted businessowners to devise strategic solutions to address
the reduced availability of drivers due to
implementation of stricter regulations thatwere realised in April this year. Interestingly,
competing convenience stores FamilyMart
and Lawson began partnering on deliveries
in the same month the regulations tookeffect, using the same trucks to deliverfrozen food in Tohoku regions. Additionally,as transporting goods over long distances
becomes more challenging due to shorter
driver hours, regional cities, particularly thosethat are situated between major urban cities,
are emerging as key relay hubs. Consequently,
logistics facilities in regional areas such as
Okayama and Shizuoka are likely to gain
renewed attention. As the “2024 problem”
continues to unfold, the logistics industry will
also evolve, with emerging innovative solutions
and a growing demand for logistics facilities
in strategic regions to enhance supply chain
efficiency and overcome truck driver shortages.
Despite the prevalence of short-term
challenges, the outlook of Japan’s logistics
sector remains positive from a longer-term
perspective. E-commerce during the pandemic
seems to have satisfied some demand inadvance, but the e-commerce penetration
rate in Japan is still relatively low. Given
the ageing population, demand is expected
to increase steadily. Overall, the logistics
sector is in the midst of an adaptation phaseto address short-term challenges, though
the longer-term outlook remains bright,
supported by growing demand from various
industries such as e-commerce, retail,wholesale, and manufacturing.

For more information about this report, please contact us
Savills JapanJon Salyards
Managing Director,
Institutional Investment Advisory+81 3 4330 3266
jsalyards@savills.co.jp

Savills Research
Andy Hurfurt
Managing Director,
Institutional Investment Advisory+81 3 4330 3328
ahurfurt@savills.co.jp

Tetsuya Kaneko
Managing Director, Head of
Research & Consultancy, Japan+81 3 4330 3103
tkaneko@savills.co.jp

Simon Smith
Regional Head of Research& Consultancy, Asia Pacific+852 2842 4573
ssmith@savills.asia

Savills plc: Savills plc is a global real estate services provider listed on the London Stock Exchange. We have an international network of more than 600 offices and associates throughout the Americas, the UK,continental Europe, Asia Pacific, Africa and the Middle East, offering a broad range of specialist advisory, management and transactional services to clients all over the world. This report is for general informative
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